It makes perfect sense. If you have already adopted outsourcing as part of your IT strategy, why not use outside expertise to manage the outsourced elements?
Jerry Coffey, director of custom solutions for Palo Alto, Calif. based Hewlett-Packard Company (HP), believes that for many companies, it’s the ideal solution. Having a single throat to choke makes the lines of accountability very clear.
Jerry Coffey>Text
He characterizes IT outsourcing options as a spectrum. At one end are companies that want to retain total control, insisting on doing everything themselves, even hardware fixes. At the opposite end are firms that have made the decision to completely outsource their IT operations and focus entirely on their business goals.
Coffey positions HP’s Integrated Support service as a viable alternative for companies that do not want to commit to either extreme. It simplifies vendor management by providing a single point of contact along with consolidation of SLAs and other key aspects of service management, while working with the technology the client wants to use. The client retains managerial authority when it comes to critical operational areas including budget, resources, vendor selection, and technology utilization.
This approach is appealing to companies that want to retain overall control of their IT operations, but see the day to day management of multiple vendor relationships as a low-value activity.
The Integrated Support service was developed in response to demand from existing customers. They liked the service they were getting from HP and wanted a way to get the same level of service from all of their vendors. In addition to a simplified vendor management process, clients could also expect improved service levels and lower overall costs, according to Coffey.
Esteban Hererra, vice president of The Concours Group, a Kingwood, Texas-based consulting and research firm with a major focus on outsourcing, agrees that there is very little value in playing ombudsman for vendors. In his experience, companies rarely anticipate how much time they will have to spend managing multi-vendor interfaces.
Even with carefully crafted contracts and SLAs, Hererra points out, “When you have two or more vendors, there’s this white space that nobody will take accountability for, and you need to manage that white space.”
But instead of focusing on who will manage vendor relationships, The Concours Group advises its clients to look carefully at what needs to be managed first. In other words, they advocate a goal-oriented operating model, which blends organizational elements with clear processes, such as supply management processes and vendor operations or outsourcing operations processes.
“Once we agree that’s where we should start, the organization falls into place very quickly,” Hererra explained.
This doesn’t mean there isn’t a place for a vendor management service, such as HP’s Integrated Support service, in the strategy advocated by The Concours Group. In fact, Hererra acknowledges that splitting up infrastructure services can lead to unacceptable degradation of service. And having “a single throat to choke,” as Jerry Coffey puts it, makes the lines of accountability very clear.
Coffey also reports that they typically streamline vendor management by reducing the number of vendors involved. But he insists they will work with any vendor’s equipment or service, an approach inherited from HP as well as Compaq.
A company like HP does bring a lot to the table in addition to skill at vendor management. For example, Integrated Support clients can count on HP’s deep expertise in delivering mission-critical services, as well as a global logistics network that few can match.
Even if a vendor management service, such as HP’s, is not in the cards, there are things any company can do to ease the pain of juggling multiple vendors.
Esteban Hererra suggests that one of the most important thing companies can do is to develop a common process – with input from all vendors – that clearly spells out the hand-offs between vendors, and between project phases.
He also uses a scorecard system that assigns a level to each vendor. This system uses four basic levels of vendor relationships: “Invest,” or top-level partner, which means that the vendor is a true partner who assumes a vested interested in their partner’s business outcomes. There are very few vendors in this level — no more than two or three, each offering a broad spectrum of IT services.
At the next level are “preferred” vendors. There may be many more of these. What they have in common is that they consistently perform at a high level with a reasonable or expected cost.
The third level is termed “opportunistic”. There are many vendors in this category, although they can move up or down, depending on performance. This level does not necessarily reflect poor performance though. Smaller vendors with very specific skill sets are usually placed here, as are those who are being retained for a limited engagement.
Finally there is the “eliminate” or “divest” level, where shaky relationships come home to roost.
One controversial tactic advocated by The Concours Group is the use of additional incentives to encourage desired behaviour, especially cooperation and communication. This is not something CIO’s like to hear. After all, they object, this is additional pay for performance already specified in the original contract. But, according to Hererra, it works and it’s usually cheaper than pursuing penalties or law suits.
The point is to ensure the goals of client and vendor are as closely aligned as possible, Hererra said. Vendors know clearly where they stand and what they need to do to capture more of the client’s business. The client gets vendors that work as a team to ensure that the client’s goals are achieved.